Lessons from Bernie Ebbers
WorldCom's CEO has been convicted of fraud, so what can we do to make sure it doesn't happen again?
The verdict is finally in.
Bernard Ebbers, the former WorldCom CEO, was convicted on nine counts of fraud on Tuesday, including securities fraud, filing false reports, and conspiracy.
After more than a week of deliberations, the jury handed down its verdict, which could land Ebbers in a federal prison for the rest of his life. The convictions collectively carry a maximum penalty of 85 years in prison. Sentencing is set for June 13.
The New York Times wrote that Ebbers' conviction was a "major victory for the government." Journalists and pundits say the verdict will serve as a cautionary tale to other CEOs who might be thinking of deceiving investors.
Maybe this is true, but I tend to have a more pessimistic view of corporate America.
Growing up during the 1980s, I was exposed to my fair share of corporate corruption on the evening news. There was the savings and loan scandal of the mid-'80s, which culminated in a government bailout in 1989, my sophomore year of high school. That same year, Michael Milken, the "junk bond king," was sentenced to 10 years in prison for securities fraud. By the time I graduated high school, his sentence had been reduced to two years, plus three years' probation. He was back on Wall Street working as a consultant, violating his probation, by the time I finished my freshman year of college.
I'm certainly glad prosecutors have come down hard on Ebbers and other CEOs involved in the latest scandals, but where were the watchdogs when the fraud was happening? Judging from history, it's not as though regulators had any reason to trust these guys.
But it's not just regulators who are to blame. The media, which I'm a part of, is also to blame. And so are investors. We all worked together to create an environment of complacency where such corruption was able to take root, even though we knew in our hearts that with a long enough leash, people at the top would likely take advantage of that leeway.
The truth is that until corrupt and dishonest behavior starts hitting people in their wallets, no one cares to dig into the details. For example, in the early 1980s no one seemed to mind if a savings and loan was involved in shady deals, until they all started going belly-up. And no one cared that a rich Wall Street whiz kid was taking excessive risks to finance corporate takeovers, until the deals started losing money.
The same was true of WorldCom and Enron in the late 1990s and early 2000. While everyone scrambled to hold onto the glory days of the Internet boom, hoping it would last a little bit longer, we all turned a blind eye to the fraud and deceit that was taking place right under our noses.
It wasn't until the house of cards came crashing down, and people started losing money, that the public became outraged. If events had played out differently and the telecom sector rebounded more quickly, would anyone have cared that Bernie Ebbers and his sly accountant Scott Sullivan monkeyed with the books? I'm afraid not.
My hope is that the lesson we all learn from the WorldCom scandal and others like it is that we must remain vigilant in our fight against corporate corruption not only when it affects our pocketbooks, but all of the time.